October 5, 2019
First, a review of last week’s events:
- EUR/USD. Most experts (55%) expected a correction of the pair up to the zone of 1.1000. This scenario was also supported by 15% of the oscillators on D1 and W1, giving clear signals about the pair being oversold. This forecast can be considered fulfilled by 100%, since the EUR rate rose on Thursday September 3 to the level of 1.0999 USD. The warning of the graphical analysis was also true that before going to the level of 1.1000, the pair may expect a decline, which it showed at the very beginning of the week.
The growth of the European currency was supported by weak macro statistics from the USA, caused in many respects by the trade wars waged by President Trump. Thus, the ISM index of business activity in the service sector showed a fall from 56.4 to 52.6. After its publication on October 3, the market drew attention to the release on the American labor market, which traditionally saw the light on the first Friday of the month, October 4. The number of new jobs created in the USA outside the agricultural sector (Non-Farm Payrolls) fell by almost 20% (from 168K to 136K), which also indicates the approach of a recession.
It is such indicators as ISM and NFP that determine the steps taken by the US Federal Reserve to change the interest rate. Therefore, the key event was the speech of Jerome Powell at the very end of the working week, from which investors hoped to find out the Fed's plans for the coming months.
Powell is famous for his ability to say a lot and not say anything specific. It so happened this time as well. As a result, after making several light jumps, the pair froze at around 1.0980;
- GBP/USD. In the British Isles, the first week of October was surprisingly calm. Nothing extraordinary happened around Brexit. Therefore, the [air ended up on Friday October 3rd in the same zone as it had been seven days before. Most of the time it moved in the side channel in the range 1.2275-1.2350, although both the bulls and the bears made several attempts to go beyond it. So, the local low was fixed at 1.2205, the high was at 1.2415, and the range of exchange rate fluctuations was 210 points;
- USD/JPY. As for the yen, it was expected that investors would wait for the developments in the US-China trade war. The yen could be pushed up by a decrease in the yield on American bonds. As a result, the fog around the negotiations between Washington and Beijing did not clear, and the yield on 10-year US government bonds fell by 12%. Thanks to these factors, as well as the weak macroeconomic statistics from the US, the yen rose, reaching on Thursday the values of a month ago in the area of 106.50. The final point of the week was set by the Japanese currency at 106.85;
- Cryptocurrencies. The cryptocurrency “Fear & Greed Index” rose from the red zone of “extreme fear” to the orange zone of “ordinary fear”. The fear that Bitcoin could fall even lower has not gone away. The market just calmed down and came to its senses a bit after an unsuccessful start of the Bakkt crypto futures trading and the ensuing panic on September 24th. Traders and investors took a break, which is clearly visible on the BTC/USD chart. The maximum volatility of the pair last week occurred on September 30 - October 01 and amounted to about 9%. For the rest of the time, the pair moved along the $8.190 horizon in an even narrower side channel, not exceeding 5%.
Following the main cryptocurrency, the main altcoins, Ethereum (ETH/USD), Litecoin (LTC/USD), Ripple (XRP/USD), etc. also went into the side trend. The total capitalization of the cryptocurrency market returned to the values of mid-May 2019 and amounts to just over $223 billion.
As for the forecast for the coming week, summarizing the opinions of a number of analysts, as well as forecasts made on the basis of a variety of methods of technical and graphical analysis, we can say the following:
- EUR/USD. Over the coming week, we are waiting for a fairly large number of events, including numerous speeches by the head of the US Federal Reserve J. Powell in the first half of the week. However, the most important events will undoubtedly be the publication of the minutes of the Fed Governing Council on Wednesday October 9, and the report on the meeting of their colleagues from the ECB on Thursday October 10. Both of these documents should shed the light on the monetary and financial policies of the United States and the EU in the near future.
At the moment, the votes of experts are distributed as follows. 60% of them, supported by graphical analysis on D1, vote in favor of the pair falling and attempting to update the October 01 low 1.0880. The remaining 40% of analysts, in full agreement with the graphical analysis on H4, adhere to the opposite point of view, believing that the European currency has not yet exhausted its potential for growth and the pair will be able to rise to the zone of 1.1100.
And finally, the indicators. Both oscillators and trend indicators on H4 are mostly colored green, on D1, half of them already change color to red, and on W1, red becomes dominant. At the same time, about 15% of the oscillators are already signaling the pair is overbought on H4 and D1;
- GBP/USD. On Tuesday, October 08, the speech of the head of the Bank of England Mark Carney is scheduled. However, it is not him, but Prime Minister Boris Johnson who now acts as the main newsmaker in the UK. And what he says, and even more so does, excites investors much more (no offense be told to Mr. Carney). But what Mr. Johnson will say and do is not yet clear to anyone (perhaps even to himself either). Only three weeks are left before Britain’s exit from the EU, and it’s unlikely that Johnson will be able to agree with Brussels on the terms of a deal advantageous for his country. So, either Brexit without a deal, or ... its another extension.
Although miracles do happen sometimes... But, as the survey shows, 65% of analysts, like graphical analysis, do not believe in them. Therefore, they are expecting the pound to fall further in an attempt to update September 3 low at 1.1960. The nearest supports are at the levels of 1.2200 and 1.2070.
It is only 35% of experts who believe in Boris Johnson and expect the best, they are waiting for the strengthening of the pound and raising the pair to the height of 1.2525.
Among the indicators, the situation is similar to the situation in the British Parliament: a complete mixture of red, green and gray colors, as well as discord regarding the pair being overbought or oversold on different time frames. So, you should not count on the help of indicators in making decisions at the moment;
- USD/JPY. Graphical analysis and 65% of experts count on the growth of the yen and the fall of the pair. Moreover, this is not only a weekly forecast, but also a forecast until the end of 2019. 100% of trend indicators on H4 and D1 agree with this, as well as 75% on W1. But among oscillators, the situation is different: 75% of them vote for the southward movement on H4, 60% vote on D1, and only 25% on W1. The goals of the bears are 106.50, 105.70, 105.00 and 104.45. The goals of the bulls are 107.55, 108.50, 109.00;
- Cryptocurrencies. Digital market fans continue to mesmerize investors with promises of sky-high profits. So, the developer of the famous antivirus software John McAfee claims that the price of Bitcoin can reach $1 million in 2020. He explains his forecast with a limited number of Bitcoins, 85% of which have already been mined. A more "modest" forecast is given by analysts at the German Bayerische Landesbank (BayernLB ).In their opinion, the planned halving of the mining reward for the next year could lead to an increase in the BTC price to $90,000, which at the current price of $8,200 will yield almost 1000% of the profit.
However, along with optimists, voices of the skeptics are heard as well, whose number is constantly growing. In the two years that have passed since the second half of 2017, cryptocurrencies not only failed to supplant traditional money, but did not even become any serious part of the financial system. They did not begin to be used on a large scale as a means of payment. Moreover, falling into the grip of state regulation, they simply lose their idea of a financial market independent of governments.
Currently, only 25% of analysts believe that Bitcoin will be able to rise above the $8,500-8,600 zone in the coming days. Most speak of a sideways movement with some dominance of bears that can lower the pair to $7,500-7,700.
Roman Butko, NordFX
Notice: These materials should not be deemed a recommendation for investment or guidance for working on financial markets: they are for informative purposes only. Trading on financial markets is risky and can lead to a loss of money deposited.